Money really does lead to a more satisfying life

By Justin Wolfers

New research suggests that more money really does lead to a more satisfying life. Surveys of thousands of Swedish lottery winners have provided persuasive evidence of this truth.

Lottery winners said they were substantially more satisfied with their lives than lottery losers. And those who won prizes worth hundreds of thousands of dollars reported being more satisfied than winners of mere tens of thousands.

Lottery winners said they were substantially more satisfied with their lives than lottery losers.

These effects are remarkably durable. They were still evident up to two decades after a big win. (The researchers lacked the data to trace out even longer-term consequences.)

The findings appear in a research report, Long-Run Effects of Lottery Wealth on Psychological Well-Being, that has generated a lot of buzz among economists. The working paper is by Erik Lindqvist from the Stockholm School of Economics, Robert Ostling from Stockholm University and David Cesarini from New York University.

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It is certain to feed a long-running debate about the role that personal finances play in shaping subjective well-being.

Many previous analyses — including several that I have conducted with my partner, Betsey Stevenson, a fellow University of Michigan economist — have documented that people with higher incomes tend to report higher levels of life satisfaction. The relationship between income and satisfaction is remarkably similar across dozens of countries, suggesting that findings about Sweden likely apply elsewhere.

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Those earlier studies merely documented a correlation. What's new here is the evidence that higher income is causing higher life satisfaction.

This research is able to reliably disentangle causation and correlation because a lottery effectively provides a randomised control trial. As in the trial of a new drug, those who received the treatment — in this case a big dose of money, courtesy of a lottery ticket — were compared both with those who received a smaller dose by winning a minor prize and with statistically matched individuals of the same age and sex who entered the lottery and didn't win.

In a drug trial — as in a lottery — whether you get the big dose, a smaller dose or no dose is determined purely by chance. Scientists find this sort of trial to be persuasive because the random assignment ensures that lottery winnings are the only factor driving systematic differences between those who receive the treatment and those in the control group. It therefore isolates the effect of extra money in driving satisfaction.

The authors persuaded the Swedish statistical authorities to try to survey every winner of three of the country's major lotteries over more than a decade, and then used government records to track other aspects of the winners' lives. The researchers examined the same indicators for Swedes who had entered but lost the same lotteries or who won minor prizes.

Their surveys took several approaches to measuring subjective well-being. The measure most robustly linked to income asks people how satisfied they are with their lives as a whole. By contrast, responses to a question asking about happiness showed less of a connection to lottery winnings, and these effects could not be reliably distinguished from the effects of chance. Social scientists widely view questions about life satisfaction as eliciting a broad-based evaluation of one's life while questions about happiness yield responses more related to current moods or feelings.

Contrary to popular stereotypes, those who win hundreds of thousands of dollars don't blow most of their winnings at once.Credit:Louise Kennerley

A further set of questions probed the mental health of respondents, finding that greater income had no effect, although in related work, the same authors find that lottery winners are prescribed fewer mental health drugs. I interpret this as suggestive but not conclusive evidence that wealth improves one's mental health.

Other studies by these authors — sometimes with other scholars — have tracked the economic lives of these lottery winners to further explore the consequences of wealth. Contrary to popular stereotypes, those who win hundreds of thousands of dollars don't blow most of their winnings at once. Instead, they slowly spend their newfound wealth over many years. Many don't quit their jobs, but they do tend to work a bit less and retire a bit earlier.

Surprisingly, the increase in wealth caused by winning the lottery has few effects on the physical health of the winners or their children. It seems possible that family wealth might have quite different effects in a less egalitarian society, like the United States.

These results provide strong evidence in support of the standard economic view that money increases well-being, albeit not in an entirely uniform manner. It runs counter to the view championed by many psychologists that people largely adapt to their circumstances — including their financial situation.

Surprisingly, the increase in wealth caused by winning the lottery has few effects on the physical health of the winners or their children.

In an email, Cesarini characterised that perspective as the "widespread misperception that science has proven that winning the lottery often makes people miserable".

That misperception most likely comes from an earlier generation of lottery studies. Perhaps the most famous of them is a 1978 study, Lottery Winners and Accident Victims: Is Happiness Relative? With the benefit of hindsight, that study appears to illustrate changing standards of empirical research more than any truths about well-being.

It compared the subjective well-being of 22 winners of the Illinois State Lottery with a control group of 22 people. The lottery winners rated themselves as happier after winning their prizes, but because the sample size was so small, the researchers concluded that this might reflect the influence of chance and failed to note that these data were consistent with the idea that the lottery winners were substantially happier. The problem with small samples is that it's hard to be sure of anything.

That same study also surveyed 29 paraplegic accident victims, finding them to be less happy than other people. Yet many popular accounts of this study describe it as if it supported the opposite proposition, that people adapt to personal tragedies.

I've seen this pattern before, as a counter-intuitive finding captures the public's imagination, taking on a life of its own. In time, the facts become too interesting to check.

But eventually, science corrects itself. After 40 years, three determined economists, thousands of lottery winners and reams of detailed data have revealed a more reliable but less romantic truth: Money really does help people lead a more satisfying life.